Globalisation and Trade

1
Globalisation and Trade

• Who Wins and Who Loses?

2
The domination of globalisation

• Dominant process in our economic lives for the
  past 60 years
• Accelerating since the 1970s
• the ever-increasing integration of national
  economies into a giant one-size-fits-all global
  economy through trade and investment rules and
  privatisation, aided by technological advances,
  and driven by corporate powerColin Hines
• Integration of the worlds economies have become
  integrated
• An increasing proportion of what we produce and
  consume is tradedand over ever-increasing
  distances

3
Ideological domination

• The major achievement of the system of free
  trade that has been the global regime governing
  the exchange of goods between nations since 1945
• The promotion of free trade is written into the
  Articles of Agreement of the IMF and World Bank)
• World Bank President Barber Conable stated in a
  press conference in 2000 that If I were to
  characterise the past decade, the most remarkable
  thing was the generation of a global consensus
  that market forces and economic efficiency were
  the best way to achieve the kind of growth which
  is the best antidote to poverty.

4

• It could give Least Developed Countries a new
  foothold in the booming markets of the rapidly
  growing economies. . . a 1 increase in African
  global market share would be worth many times
  more than what you currently receive in aid

• Peter Mandelsohn, EU Trade Commissioner
• Speaking about the Doha Round of WTO talks
• 29 February 2008

5

• Clinton, with strong backing from U.S. organised
  labour, has advocated a time out in trade
  liberalisation and questioned whether the theory
  of comparative advantage that underpins free
  trade still applies in the 21st century

• Reuters, 10 March 2008

6
Absolute vs. Comparative Advantage

• Adam Smith argued that a country could gain from
  trade if it has the lowest cost of production of
  a good but what about when one country produces
  everything more efficiently?

7
Theory of Comparative Advantage

• Ricardo argued that if each country concentrates
  on producing the goods it produces most
  efficiently and trades for other goods, all will
  gain (1817)

8
Assumptions about labour

• Labour is the only factor of production
  included in the model
• Within the country all peoples work is the same
  but across countries peoples work varies
• Labour be reallocated without cost but cannot
  move between countries
• There is no unemployment

9
Assumptions about goods

• Goods are assumed to be heterogeneous, i.e.
  people are indifferent between the same product
  made in different countries
• Goods can be transported costlessly costs of
  pollution?

10
Other assumptions

• There are technological differences between
  countries
• Model is based on only two countries

11
Mapping your personal items

• Check the origin of the clothes you have with you
  today
• Discuss this with a partner
• We will conduct a survey later
• Mobile phones and shoes can be very interesting!
• A prize for the most exotic location!

12
The critique of the three Cs

• Competition between poor countries
• Control the WTO is heavily politically dominated
• Climate change

13
Changes in the Terms of Trade of some Country
Groups, 1980-2 to 2001-3
Group change
Developed economies 7.9
Developing economies -16.7
Developing economies Africa -24.1
Least developed countries -35.2
Landlocked countries -16.0
Sub-Saharan Africa -20.7
14
Increases in inequality

• In Latin American countries, the wage gap between
  highly skilled and unskilled increased markedly
  between 1984 and 1995--UNCTAD
• Real purchasing power of the least skilled
  workers actually declined, in several cases by
  over 20.
• ILO study of 30 countries in Africa, Asia and
  Latin America found that in two thirds of the
  countries the real wages of all workers fell
  between the late 1970s and the late 1980s, with
  the least skilled falling by the greatest
  percentage.
• For 38 countries between 1965 and 1992, greater
  openness to trade had reduced the incomes of the
  poorest 40 of the population but strongly
  increased those of the remaining groups. The
  costs of adjusting to great openness are borne
  exclusively by the poorWorld Bank, 1999

15
Competition

• Competition for commodities such as coffee, sugar
  and tea, as well as in manufactures such as
  textiles
• Tsunami destruction exacerbated by
  tourism-related deforestation
• Two-thirds of exports from developing countries
  come from just eight countries, none of which are
  LDCs
• All the increase in the value of vegetables
  exported from sub-Saharan Africa has accrued to
  Kenya, and to larger farmers, who are actually
  depriving their neighbours of water they need for
  subsistence farming
• The rise of China as a trading power has been a
  mixed blessing
• Benefits to countries exporting raw materials
• Disastrous for those competing in e.g. textiles

16
Solidarity in commodity markets

• For example, in May 2005 a new government in
  Ecuador (which exports more bananas than any
  other country) signed a degree to regulate the
  volume of bananas leaving the country. Two months
  later, Malaysia and Indonesia announced a
  bilateral plan to cooperate on the palm oil,
  rubber, cocoa, timber and other markets in order
  to ensure price stability and eliminate the
  undercutting of their position by others. . . .
  On the world tea market, discussions have been
  reported involving all four leading tea
  producers, China, India, Kenya and Sri Lanka.

17
General Agreement on Sustainable Trade
Support the local Governments allowed to favour domestic production
Favouring certain partners States will be allowed to choose to give preferential trade terms to goods and services from other states which respect human rights, treat workers fairly, and protect the environment
Performance requirements States may impose requirements on corporations opening production facilities in their territories based on a minimum level of domestic input to the production process a minimum level of local equity investment a minimum level of local staff minimum environmental standards
Standstill and rollback No state party to GAST can pass laws or adopt regulations that diminish local control of industry and services
Dispute resolution Citizen groups and community institutions should be able to sue companies for violations of this trade code, under a transparent and public process.
18
Trade subsidiarity

• Local, non-intensive goods such as seasonal fruit
  and vegetables and other raw materials which can
  be grown without much complex labour input.
• Global, non-intensive goods, which do not need
  much labour but require a different climate from
  our own.
• Local, complex goods that require skill and time
  to produce but not the import of raw materials.
• Global, complex goods that need technical
  expertise and considerable time to produce and
  for which raw materials or the size of market
  suggests a problem with local production.

19
Production possibility grid
Labour Raw materials Raw materials
Labour Local Global
Labour Non-intensive Farmers markets self-build domestic textiles Fair trade replace WTO with GAST
Labour Intensive Support of local craft workers Mending to replace obsolescence end to intellectual property laws
20
Sufficiency economy

• A watchword of sustainable economics is
  self-reliancenot self-sufficiency, which I
  believe holds very few attractions. Self-reliance
  entails combining judicious and necessary trade
  with other countries with an unapologetic
  emphasis on each country maintaining security of
  supply in terms of energy, food and even
  manufacturing.

21
Trade-related direct action in India

• Shut-down of a Coca-Cola plant in Plachimada,
  Kerala by local tribal women the company had
  been exploiting the valuable local resource of
  water to the extent of 1.5 million litres a day
• Blockades of 87 Coca-Cola and Pepsi plants
  nationwide inspired by the Plachimada example
• Students at Jawaharlal Nehru University voted to
  replace their campus Nestle outlet with a café
  serving indigenous cuisine from the North East
  Tribal region of India.
• Seed Sovereignty a nationwide movement
  encouraging non-cooperation with seed patent laws